Supplementtarty Submission to QCA

17 January 2015

SUBMISSION TOAERON QUEENSLAND ELECTRICTY DISTRIBUTION REGULATORy PROPOSALS 2015-16 TO 2019-20

BACKGROUND

The Queensland Consumers’ Association (the Association) is a non-profit organisation which exists to advance the interests of Queensland consumers. The Association’s members work in a voluntary capacity and specialise in particular policy areas, including energy. The Association is a member of the Consumers’ Federation of Australia, the peak body for Australian consumer groups and is represented on the Queensland Competition Authority’s Consumer Consultative Committee and the Energy and Water Queensland Ombudsman’s Advisory Council. The Association is also a member of the Queensland Council of Social Service’s Essential Services Consultative Group.

The Association has participated in previous determination processes of the QCA and the AERand welcomes the opportunity to make this submission onEnergex and Ergon Energy’s regulatory proposals.

The contact person for this submission is: Ian Jarratt, email

GENERAL COMMENTS

The Association emphasises the importance of the AER’s decisions on the cost of and quality of servicesprovided by the distributors and the major impactdistributioncharges have on consumer bills.

The Association considers that the current regulatory rulesand processes are inadequate and a comprehensive, transparent review of the regulations and the regulatory process is required well before the start of the next regulatory period.

SPECIFIC COMMENTS

Demand management (DM)

As indicated in the Association’s recent submission to the Senate inquiry into distribution businesses, for many years, the Association has advocated,largely unsuccessfully, at state and national level for higher priority to be given by distributors and other stakeholders, including regulators and governments, to the implementation of demand management measures to reduce the cost of meeting peak demand.

And, based on the major benefits Queensland consumers obtained from the introduction many years ago of direct load control of hot water systems by distributors, the Association has also highlighted for many years the large potential benefits likely from voluntary direct load control of household air conditioners.

The need for this became apparent several years ago when the use of air conditioners began to expand very rapidly. Yet industry and governments failed[1] to quickly develop and implement policies to overcome impediments to the use of direct load control of air conditioners. The Association considers that this was a major public policy failure that has cost consumers and the economy dearly.

Thefailure nationally to use direct load control sufficiently to address the problem has resulted in a massive increase in peak demand in many states, especially late in the afternoon on very hot days, and in the network investments needed to meet it. These investments have in turn substantially pushed up power prices to consumers.

The advantages of direct load control over other forms of demand management, and other approaches to managing peak demand, include:

• It is a simple “set and forget” operation for consumers
• It provides a highly reliable way for distributors to manage peak demand
• It can lock in apeak demand reduction capability for several years
• It can often be implemented without the need for any tariff or meter changes.

Retrofitting older air conditionersfor direct load control does not seem to be practical or economic. Nevertheless, the Association considers that the continuing expansion in the number of airconditioners in use, and the impending very large replacement market, will still allow directloadcontrol of these appliances to bea significant demand management tool.

Also,PeakSmart enabled air conditioners are now widely available but for a variety of reasons[2] many will be installed without a signal receiverbeing fitted. Therefore, there will be considerable potential for distributors to later develop and implement programs that result in a receiver being fitted and the appliances becoming part of distributor demand management portfolios.

Trials have shown that direct load control of household air conditioners results in no noticeable reduction in consumer comfort.

Distributors, retailers, equipment manufacturers, regulators and governments should work much harder and more cooperatively than in the past to ensure that demand management, including direct load control, plays an important role in the future management of peak demand.

The Association also considers that Federal governmentshould give high priority to implementing the recommendations in theConsultation Regulation Impact Statement on Mandating Smart Appliance interfaces issued by the Equipment, Energy Efficiency Committee of Energy Efficiency in 2013.

DemandManagement and the AER

The Association welcomes the AER’s recognition of the relevance of DM to the achievement of its many objectives in this revenue setting exercise, as indicated by many statements in its recent draft decision on Ausgrid’s DM proposals.

However, it is essential that the AER consider the proposals of Energex and Ergon Energy on their own merits and take full account of the peculiarities and needs of these networks and their customers and the work undertake and experience the networks have gained on DM during the current regulatory period.

As indicated earlier, the Association considers that far more should have been done in the past to use DM to address network problems and expects the AER to look closely and positively at the networks’ proposals and to identify possible other uses of DM and potential positive impacts on many parts of the determination.

In this regard, the Association emphasises the need for the AER to look very closely at the scope for DM to reduce not only expenditure on asset augmentation but also on asset replacement, and, as in the Ausgrid draft decision, the extent to which DM may be able to reduce the risk of overinvestment resulting in stranded or underutilised assets.

Also, while the Association recognises that DM investments should be cost effective, the AER needs to recognise that some DM may be along term investment to address possible needs well beyond the next regulatory period.

Energex and Ergon Energy’s Demand Management Proposals

The Association has examined these proposals and welcomes the networks’continuing and increased interest in DM as a cost effective solution to many and diverse problems.

However, the Association does not have sufficient resources to comment on the proposals in detail. This will be done by consumerorganisations with greater resources.

Therefore, the Association makes only the following comments:

• The proposed expenditures on DM by both distributors are very low relative to the total revenue sought and the Association is concerned that there may be other opportunities for cost effective expenditure on DM.

• While both Energex and Ergon Energy are adopting targeted local approaches to DM, Energex’s proposal involves more broad-based network wide approaches, for example financial incentives for consumers to participate in the PeakSmart air conditioners direct load control program.

• Ergon Energy’s non-provision of incentives for customers to install and connect PeakSmart air conditioners for direct load control and the requirement that the household go onto a TOU tariff are major disincentives for consumers to sign up for direct load control of air conditioners. It may also be creating marketing problems for appliance retailers operating throughout the state.

• The proportion of air conditioners participating in the Energex PeakSmart program this summer is much higher than in the previous 2 years. If this is maintained, the forecast amounts under load control in the proposal are likely to be low, assuming no changes to the incentives and the type of program operated

• Because some consumers have air conditioners connected for direct load control but have not registered them with Energex or received an incentive payment, the amount of load under control achieved and achievable may be significantly greater than indicated in Energex’s proposal..

[1] The reasons are identified and discussed in a Consultation Regulation Impact Statement on Mandating Smart Appliance interfaces issued by the Equipment, Energy Efficiency Committee of Energy Efficiency in 2013 and available at

[2] For example, where a distributor does not want or is unable to have direct control of the household air conditioner loads or a householder does not want to participate in a distributor’s direct load control program